By James Dennin for Kapitall
Dog food seems pretty recession resistant. So we found 4 pet stocks with a lot of leverage in this growth market.
The market for premium dog food has risen a worldview-shattering 175% over the last 15 years. You'd be hard-pressed to find another consumer good whose prices could maintain that kind of trajectory.
Just try and picture the riots if gas prices grew at the same rate over a similar period. Actually we can. It wasn't pretty.
While it doesn't seem likely that Petco will have to start rationing its kibble anytime soon, it is a fairly striking trend — even if you are a doting pet-owner. People are willing to spend a lot more on their pets now than they were as few as five years ago.
That's not all that's motivating the trend, however. People are also getting more pets: dog-ownership climbed above 50% this year. This means Americans are starting to spend more on pet products on the high and low-priced end.
The 15-year period of the sample is actually big enough to include both booming and busting economic environments. And yet the trend has remained pretty consistent, indicating that the kind of people who buy premium dog food aren't that swayed by how the economy is doing.
So the question on an investor's mind is this: are there more undervalued pet stocks? In case you're inclined to believe that Americans have only just begun to come around on swankier goods for their pets, we found 4 pet stocks that will have a lot of leverage on increased consumer spending.
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1. PetMed Express Inc. (PETS, Earnings, Analysts, Financials): Markets non-prescription and prescription pet medications; and other health products for dogs, cats, and horses. Market cap at $263.88M, most recent closing price at $12.94.
2. Aratana Therapeutics, Inc. (PETX, Earnings, Analysts, Financials): Focuses on the licensing, acquisition, development, and commercialization of biopharmaceutical products for cats, dogs, and other companion animals worldwide. Market cap at $420.64M, most recent closing price at $15.33.
3. PetSmart, Inc. (PETM, Earnings, Analysts, Financials): Operates as a specialty retailer of products, services, and solutions for pets in North America. Market cap at $6.81B, most recent closing price at $69.03.
4. Central Garden & Pet Co. (CENT, Earnings, Analysts, Financials): Produces and sells products for the pet, and lawn and garden supplies industries primarily in the United States. Market cap at $420.22M, most recent closing price at $8.42.
(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research.)